Correlation Between Global X and Vanguard FTSE

Can any of the company-specific risk be diversified away by investing in both Global X and Vanguard FTSE at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Global X and Vanguard FTSE into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Global X Big and Vanguard FTSE Canada, you can compare the effects of market volatilities on Global X and Vanguard FTSE and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Global X with a short position of Vanguard FTSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Global X and Vanguard FTSE.

Diversification Opportunities for Global X and Vanguard FTSE

0.93

Correlation Coefficient

Global X  Vanguard FTSE

Almost no diversification

The 3 months correlation between Global and Vanguard is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Global X Big and Vanguard FTSE Canada in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard FTSE Canada and Global X is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Global X Big are associated (or correlated) with Vanguard FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard FTSE Canada has no effect on the direction of Global X i.e., Global X and Vanguard FTSE go up and down completely randomly.

Pair Corralation between Global X and Vanguard FTSE

Assuming the 90 days trading horizon Global X Big is expected to generate 4.3 times more return on investment than Vanguard FTSE. However, Global X is 4.3 times more volatile than Vanguard FTSE Canada. It trades about 0.21 of its potential returns per unit of risk. Vanguard FTSE Canada is currently generating about 0.37 per unit of risk. If you would invest  2,557  in Global X Big on September 2, 2024 and sell it today you would earn a total of  813.00  from holding Global X Big or generate 31.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Global X Big  vs.  Vanguard FTSE Canada

Global X Big

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Global X Big are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Global X displayed solid returns over the last few months and may actually be approaching a breakup point.

Vanguard FTSE Canada

Risk-Adjusted Performance

29 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard FTSE Canada are ranked lower than 29 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Vanguard FTSE may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Global X and Vanguard FTSE

The main advantage of trading using opposite Global X and Vanguard FTSE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global X position performs unexpectedly, Vanguard FTSE can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Vanguard FTSE will offset losses from the drop in Vanguard FTSE's long position.

The idea behind Global X Big and Vanguard FTSE Canada pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.